The EverGreen Scene: Marijuana tax revenue, prices, likely to vary

With around half of Washington under a state of moratorium or having outright banned the growth, processing or sale of recreational marijuana, it’s not clear how much tax revenue the state will take in.

Colorado pulled in $3.5 million in taxes for retail and medical sales in its first month of the legal recreational market. Estimates say that the state will see $98 million by the end of the next fiscal year.

In February, the Washington State Economic and Revenue Forecast Council projected $51 million in marijuana revenue for the 2015-2017 biennium, jumping to $138.5 million for the two years ending June 30 of 2019.

But Democratic Rep. Ross Hunter, who’s part of the council and the House’s top budget writer, said he expects the forecast to change.

In Washington, I-502 includes a 25 percent tax levied at transactions between each individual step of the process, known as excise taxes. This tax can also be altered, depending on how the market shakes out.

According to Mikael Carpenter of the Washington Liquor Control Board, the LCB will collect the excise taxes, with the state Department of Revenue collecting regular sales taxes, as well as business and occupancy taxes.

I-502 calls for marijuana revenue to be placed daily into a fund approved by the state treasurer, and dispersed every three months by the Liquor Control Board. Services that will receive money each quarter include $125,000 to the Department of Social and Health Services to design and implement a “Washington state healthy youth survey,” which will be conducted every two years. The survey will seek to measure areas such as drug use, antisocial behavior and academic records in Washington youth.

An amount not to exceed $1.25 million will be granted each quarter to the Liquor Control Board to implement and administer I-502.

Ten percent will go to the Department of Health to create and implement marijuana and public health programs, including a public health hotline. Multiple other areas are designated for funding as well.

Alison Holcomb of the ACLU of Washington, who was involved with the writing of I-502, said that the total projected tax burden for the consumer will most likely be between 27 to 40 percent.

“The 25 percent was selected and spread out that way to achieve a tax burden in between cigarettes and alcohol,” Holcomb said.

Holcomb said that the tax burden was dispersed between every wholesale level – growing, processing and retail – to avoid tax ‘choke points’ where one level would be the sole bearer of taxes. It also discourages tax fraud or evasion by spreading taxes out, she said.

There is an exception to this, Holcomb said. Retailers are not allowed to grow or process marijuana, but a grower can also hold a production license, and vice versa.

If production and growth are owned by the same entity, and utilized in tandem, the grower/producer only pays one 25 percent tax.

If they are separated at all, or if the grower ships the product to an outside entity for processing, they are both subjected to a 25 percent tax.

Laid out in I-502 is the provision that the Liquor Control Board and the Department of Revenue must regularly consult with the state legislature to review taxation levels.

According to Holcomb, these levels can be altered by the legislature depending on how the market develops. Holcomb says that she would like to see a more responsive system for adjusting tax levels.

“Moving forward, it would be ideal if the tax levels could be set at a nimbler level,” Holcomb said.

Holcomb also says that taxation will most likely not be a key factor in determining the final retail price of marijuana, that some of it relies on other costs and prices that growers, producers and retailers have and choose to charge. These can include, for example, rent, other business licenses, growing materials, land taxation costs and profitable markup. Additionally, as with any market, supply and demand will dramatically affect the overall cost of the product.

“I think the biggest impact on pricing will be supply,” Holcomb said. “We’ll probably see pretty high prices in the beginning.”

Holcomb cited a price plummet in 2009 in the medical marijuana industry when the market was flooded with an increase in supply. Once recreational marijuana growers and producers find their footing and determine the proper levels of product output, she said recreational prices will likely fall as well.